Prime Minister Tony Abbott has announced the terms of reference for a royal commission to shine a "great big spotlight" on union governance and corruption.

The commission would target "a culture of cover-up", Mr Abbott said.

Prime Minister Tony Abbott with Senator George Brandis and Senator Eric Abetz during a press conference to announce a royal commission into unions. Photo: Andrew Meares

It will be headed by former High Court judge Dyson Heydon and has been given a suggested reporting date of the end of the year.

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The Coalition went to the election promising a judicial inquiry into the use of "slush funds" at the Australian Workers Union in the 1990s, but has broadened the inquiry following revelations of kickbacks in the construction sector.

"This is a government which is absolutely committed to the rule of law, whether it is in border protection or in our workplaces," Mr Abbott told reporters in Canberra on Monday.

"We are absolutely committed to the rule of law and this royal commission is designed to shine a great, big spotlight into the dark corners of our community to ensure that honest workers and honest businesses get a fair go.

"Honest workers and honest unionists should not be ripped off by corrupt officials and honest businesses should be able to go about their work without fear of intimidation, corruption [or] standover tactics."

Workplace Relations Minister Eric Abetz said the royal commission will target employers who pay kickbacks as well as the union officials who accept them.

"This is a sword that will cut both ways and we are determined to ensure that the rule of law exists in our construction sector," Mr Abetz said.

Labor and the Greens have rejected the need for a royal commission, with both parties arguing that a joint police task-force would be cheaper, quicker and more effective.

Australian Council of Trade Unions President Ged Kearney has described the royal commission as a a political "witch-hunt" aimed at undermining the union movement.Attorney-General George Brandis denied that a police taskforce would make a royal commission redundant.

''This is a matter of a widespread culture which requires the powers and the thoroughness of a royal commission to get to the bottom of," Mr Brandis said.

"Royal commissions routinely have police or police taskforce seconded to them so they can work hand in glove with the police ... This mechanism is the most thorough-going and pervasive mechanism to get to the heart of this problem, to throw a spotlight on it and it passes strange that (Opposition Leader Bill) Shorten is seeking to avoid the most pervasive and thorough inquiry into what he acknowledges to be a serious problem."